Sustainability and human and geographic diversity underpinned BHP Billiton’s global success, but it would all be worth naught if it did not work in the community and country’s best interests, Chilean-born Daniel Malchuk of BHP Billiton told the Australia Latin America Business Council’s 25th anniversary dinner in Perth last week.
 
In a candid and frank address, Malchuk openly conceded that the world’s resources were finite, which made the moral imperative of assisting countries to become self-sufficient beyond life of mine all the more critical.
 
He noted that in 2012, the resources industry accounted for about 25% of the exports in Latin America and 6.3% of its GDP, with mining’s share of the GDP in Latin America growing at a much faster pace compared to the rest of the economy.
 
“Despite this great success story, history shows that mineral wealth can create challenges if not well managed,” he said. “Resource-rich economies often find themselves vulnerable to global economic conditions, as their exports, and therefore their growth, are tied to the volatility of global markets. Decisions on public policy are being formed by this.”
 
He used the case study of BHP’s Cluster program, launched in 2009 from a broader initiative by the Chilean government to reduce the economy’s dependence on the mining industry – “because, as we know, resources at some point in the future will deplete. It is then necessary to promote a more diverse economy that can be sustained beyond the life of the mining operations”
 
The program aims to create 250 world-class mining suppliers in the country by 2020.
 
This will, in turn, address Chile’s rampant inequality.
 
The stakes are high. Chile in particular has experienced strong economic growth and greatly improved the quality of life of its people in the past 25 years, supported by what he called “a stable and competitive policy framework”. Since the 1990s its income per capita has grown from $5000 to $18,000 and the population living in poverty has reduced from 47% to 15% over the same period.
 
In spite of this progress, Malchuk said Chile must address “the serious income inequality which is unfortunately a common challenge among middle income countries”.
 
“Mining will continue to be an engine of growth for both Chile and Latin America for many decades to come,” he said. “The mining industry has a significant and growing role to play in the social and economic development of these countries.
 
“It will take government and industry working together to ensure that these resources are managed appropriately for the benefit of current and future generations.”
 
He noted that in the past five years, mining accounted for over 20% of Chile’s GDP, 60% of exports and roughly 10% of employment, yet just 27% of mining suppliers were exporting compared to 75% in Australia.
 
The Cluster program aims to create a win-win relationship based on the understanding that the challenges facing the mining industry can stimulate suppliers to develop greater technical and managerial capabilities and help them grow into world class, knowledge-intensive businesses.
 
In this way suppliers, along with the local economy, can capture a larger share of the industry’s rising demand for knowledge intensive goods and services – both within Chile and internationally.
 
By December 2012, the program grew from five to 39 participants, with combined sales of over $US400 million and employing over 5000 people. Some companies are already exporting their products and services to new countries, he said, while the program has also inspired similar initiatives by Chile’s state-owned copper company Codelco.
 
The program’s work has also been recognised by the World Economic Forum and the OECD as an example of how the mining industry can drive economic and social development in ways that fit with local and national priorities.
 
“The Cluster program is just one example of BHP’s capacity-building initiatives it believes will transform mining countries,” Malchuk said. “Increasing the multiplier effect of miner will help to ensure the benefits of resource wealth are realised to drive stable and sustainable economic growth.”
 
He said BHP’s strategy of geographic diversity is a critical cornerstone if the company’s success. Over its 150 year history, BHP now operates in 141 locations in 26 countries, covering a diversified portfolio including steel making materials, metals, energy and fertilizers.
 
“Diversity is an essential element of our strategy. We know that to succeed in running a global company we need a diverse and inclusive workforce that reflects the communities in which we work,” he said.
 
Of BHP’s almost 50,000 employees, 44% live and work in Australia, while almost one quarter are located in Latin America. He noted that its Nickel West operation in Western Australia has employees from over 42 nationalities.
 
“I strongly believe that diverse experiences, perspectives and backgrounds led to new ideas and better decisions for our business,” said Malchuk, who has worked in four countries himself during his time at BHP.
 
“Diversity is the glue that holds BHP together as a company, and is what makes our workforce greater than the sum of its parts.
 
“Diversity of geography is one of the qualities that underpins BHP’s portfolio, with Latin America holding a key position. It is the success of the mining industry that is one of the reasons behind the sustained growth in Latin American economies in recent years.”
 
BHP has copper, nickel, iron ore and aluminium operations in Chile, Colombia, Brazil and Peru, and copper exploration activity in Chile and Peru.